After a sluggish start to last week, gold and silver came out swinging after Wednesday’s Juneteenth market holiday. But the gains were short-lived. Friday’s S&P Global flash PMI composite output index – showing that U.S. business activity expanded at its fastest pace in 26 months in June – sent both commodities plummeting. Meanwhile, investors with high hopes for an interest rate cut later this year spent most of the week determining what to make of the largely hawkish remarks by the eight Federal Reserve officials who spoke at separate events. They indicated a desire to see more conclusive economic data showing progress in taming inflation before deciding whether to trim 23-year-high interest rates.
GOLD & SILVER:
You might call last week the Tale of Two Data Drops. After getting off to a rocky start to start last week, gold and silver popped on Thursday after dual reports from the U.S. Census Bureau revealed disappointing housing starts and building permit figures for May. Gold closed out Thursday up $31.53 at $2,361 per ounce, while silver was up $1 at $30.77 per ounce.
Friday’s S&P Global flash PMI composite output index for June, which came in at its highest point since April 2022, took a wrecking ball to both precious metals. By late afternoon, gold had tumbled $39.10 to $2,321 per ounce. Silver also fell victim to the better-than-expected economic report, trading Friday afternoon down $1.23 at $29.54.
ASSET SPOTLIGHT:
In recent posts, we’ve explained some reasons why the global appeal for gold figures will remain considerably elevated for the foreseeable future.
This week, we’re looking at silver – which has outperformed its yellow cousin in 2024 – and how heavy industrial demand is rapidly outstripping supply, setting the stage for what some banks and experts predict could be a price explosion for the versatile metal.
With industry accounting for about half of all silver consumption, the commodity is an indispensable ingredient in batteries, LED chips, semiconductors, nuclear reactors, medicine, and wood preservatives, to name just a handful. In particular, the booming solar power industry, where large amounts of silver are required to produce solar panels, is driving demand. The Wall Street Journal recently reported that demand for silver to make the panels is predicted to increase by almost 170% by 2030, to roughly 273 million ounces – or about one-fifth of total silver demand.
Simply put, the largest industrial silver consumers – like the U.S., India, and China – are using the commodity faster than it can be mined in some places. If that imbalance continues, predicts silver market analyst Peter Krauth, above-ground silver inventories could collapse in one to two years.
Is silver ready for an unprecedented run?
THE FED SAID:
The flurry of Federal Reserve officials who hit the speaking circuit last week adopted a largely hawkish view of the current economic situation. While noting some progress on the inflation front, most doubled down on Federal Reserve chief Jerome Powell’s desire to thoroughly study additional data throughout the summer to determine whether enough progress was being made in beating back inflation before considering an interest rate cut.
“I will need to observe a period of favorable inflation, moderating demand and expanding supply before becoming confident that a reduction in the target range for the federal funds rate is appropriate,” St. Louis Federal Reserve President Alberto Musalem told the CFA Society of St Louis last Tuesday. “These conditions could take months, and more likely quarters, to play out.”
The Fed has kept its benchmark interest rate at 5.25% to 5.5% since last July. The Federal Open Market Committee voted unanimously earlier this month to leave rates unchanged but indicated one cut could be in the cards this year, economy willing.
BEAT THE STREET:
You might call it Fedspeak: The Sequel. At least six more Federal Reserve officials are slated to speak at various events this week. We should also get a snapshot of the inflation picture, for better or worse. The Consumer Confidence Index is due Tuesday, followed by a tally of May’s new home sales on Wednesday. In addition to the week’s initial unemployment claims, Thursday will also see reports on durable goods orders and a second revision of GDP. We close out the week with a look at how personal spending and income fared last month and June’s Chicago Business Barometer, a valuable measure of the national economy from a regional view.
GOLD RUSH:
When the economy hands you lemons, you make panda coins. Higher gold prices are prompting some overseas bullion merchants to get a little creative to move product. Nikkei Asia reports that Japanese importers, citing gold’s higher price tag, have recently been ordering large quantities of Chinese-made commemorative silver coins featuring giant pandas.
Retailers aim to offer buyers the opportunity to own a physical asset at a more comfortable price point. The 30-gram coin fetches 6,217 yen, or $39.52, with a premium over the value based on the metal content. Because China makes yearly design changes to the coin, they’ve quickly become a collector’s item.
Even though most people associate pandas primarily with China, they’re also quite popular in Japan, too.
